Global companies like Coca-Cola don’t just deal with demographic and cultural differences.
They have to deal with politics, monetary policy, and fiscal policy.
In it’s Q1 earnings announcement, Coca-Cola laid out the cost of doing business in Venezuela, where policymakers boldly revalued the country’s currency:
Based on recent changes to the Venezuelan currency exchange rate mechanisms, we changed the exchange rate we used to remeasure our Venezuelan subsidiary’s financial statements into U.S. dollars. As of March 28, 2014, we used the exchange rate determined by periodic auctions for U.S. dollars conducted under Venezuela’s Complementary System of Foreign Currency Administration (SICAD 1). As of March 28, 2014, the SICAD 1 rate was 10.8 bolivars to the U.S. dollar, compared to the official exchange rate of 6.3 bolivars to the U.S. dollar we previously used. During the first quarter, the Company recorded charges of $US247 million related to the devaluation of the Venezuelan bolivar.
Based on our current projections, we expect this change in exchange rates to have an unfavorable currency impact on our operating income for the remainder of 2014. Additionally, the Venezuelan government issued a new law on fair pricing establishing the maximum profit a business can earn in Venezuela. We are currently evaluating the impact the new law may have on our 2014 operating results.
That’s no small amount of money. Then again, that’s in the context of Coca-Cola’s $US10.5 billion in sales and $US1.6 billion in net income during the quarter.
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